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SPLC Insight: Supplier Sustainability Ratings Frequently Asked Questions (FAQ) | SUSTAINABLE PURCHASING LEADERSHIP COUNCIL SPLC Insight: Supplier Sustainability Ratings Frequently Asked Questions (FAQ) – SUSTAINABLE PURCHASING LEADERSHIP COUNCIL
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SPLC INSIGHT

Supplier Sustainability Ratings


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Frequently Asked Questions

 

Why should my organization assess how well its suppliers are managing their company’s social, environmental, and economic sustainability at the enterprise-level?

Increasingly, large purchasing organizations in the private and public sectors want to know that their suppliers are also responsible corporate citizens. They are interested in how sustainably their suppliers are operating as a whole for several reasons:

(1) Reputation. If a supplier is revealed to be a poor corporate citizen in any part of their business the damage to the buyer’s brand can be significant. 

(2) Innovation. Cultivating a supply base or supply chain full of sustainability-minded suppliers can be advantageous because sustainability-minded companies have been shown to be more innovative and outperform others.

(3) Operational Risk. Companies that are carefully managing their sustainability are more likely to be prepared and resilient in the face of increasing sustainability risks, such as water shortages, climate changes, etc. 

(4) Citizenship. They want to operate in a world where all businesses are good corporate citizens. Setting an expectation that their suppliers be good corporate citizens is a very effective way to help create that world.

It’s important to note that leading purchasing organizations are assessing their suppliers’ sustainability at the enterprise-level in addition to evaluating the sustainability of the individual products and services they buy. Both are important because we’ll only have a truly sustainable economy when we can buy sustainable products from companies that are operated sustainably. 

 

How do I know if my suppliers are sustainability leaders or laggards?

This is the fundamental question that led to SPLC’s research on raters. Before focusing in on rating tools, we considered many different types of tools that could potentially answer this question. We wanted to give full consideration to all the enterprise-level sustainability distinctions that suppliers have earned in order to demonstrate their enterprise-level sustainability performance, including: awards, certifications, directory listings, inclusion in sustainability-themed investment indexes and reporting platforms, memberships, rankings, and ratings.

For the purpose of evaluating an entire supply base, we concluded that enterprise-level sustainability ratings are the most practical and defensible method of differentiating leaders from laggards in the contexts of procurement and supplier relationship management. This is because rating tools are the most widely accessible for suppliers and the most actionable for purchasing professionals.

 

What are the advantages of supplier ratings over other assessment tools?

In addition to ratings, we evaluated the suitability of a number of other tools that could be used to distinguish the sustainability of a supplier, including awards, certifications, directory listings, inclusion in sustainability-themed investment indexes and reporting platforms, memberships, and rankings. See the landscape overview of tools in our report here. These tools all serve a variety of different purposes very well. However, our analysis concluded that for the purpose of evaluating the sustainability leadership of suppliers across the full supply chain, ratings tools are the most accessible for suppliers and the most actionable for purchasing professionals.

Ratings answer the question: “Where is my supplier on a continuum from laggard to leadership?” By comparison, certifications answer the question: “Is my supplier verified as a sustainability leader?” Reporting platforms, memberships, directories and awards answer the question: “Has my supplier self-declared to meet the sustainability criteria of this particular program?”

From a purchaser’s perspective, a ratings tool is highly desirable because it offers:

  • Visibility into the sustainability of many different types of suppliers in a standardized way
  • Verification of supplier data and performance is done by teams of trained analysts
  • Independence and neutrality (third-party raters)
  • Value to suppliers, for example, through performance benchmarking
  • Scale-ability: there are no set limits on how many suppliers can be rated
  • Simplification: final ratings are easy to understand, track, and communicate to internal and external stakeholders
  • Metrics: The ability to roll scores up into a metric such as “50% of spend is with suppliers rated an B or higher.”
  • Ease in identifying sustainability leaders and laggards for supplier selection and engagement programs, such as preferred supplier programs and quarterly business reviews and recognition
  • Mobilization of suppliers to improve sustainability performance

 

Why should I use a third party supplier rating tool instead of creating my own way of collecting and scoring supplier sustainability data, such as a questionnaire?

It depends on what you are trying to accomplish. A questionnaire could be appropriate for a product-level assessment, or for an issue that is not addressed by a sustainability rating.

SPLC strongly encourages the use of high quality existing tools and resources wherever possible. In the case of supplier ratings, there are several reasons why a shared platform is advantageous to creating your own in-house questionnaire and rating:

  • Expertise. The investor community and others have accumulated decades of expertise in rating the sustainability of enterprises and verifying these data. This is especially true when it comes to creating a fair scoring algorithm.
  • Reduced Costs. Staff members at established ratings providers conduct the outreach and on-boarding of suppliers, enabling your staff to focus on using the results. It would be very costly to build this function from scratch, with the same levels of expertise, oversight, and utilization rates. With an existing tool, the cost of verifying supplier-submitted data is shared, rather than being the sole expense of the purchaser.
  • Survey fatigue. Reduce the burden for suppliers and improve response rates. Suppliers are being overwhelmed by the many one-off sustainability questionnaires they are receiving from customers. By using shared platforms that allow suppliers to report once to many purchasers, purchasers can reduce suppliers’ survey fatigue, which will likely increase their engagement.
  • Supplier insights. Shared platforms often have data on companies that are not your suppliers. This means that you and your suppliers can get insights by benchmarking their performance against like companies. 
  • User experience. Ratings software is typically easy to use, with on-boarding and recruitment processes, help documentation, and support staff on hand.
  • Improve quality. Ratings tool providers have staff trained to request and review company data with established quality management systems.
  • Defensible. It is easier to defend a widely-used rating than to defend a home-grown rating or survey-tool to stakeholders.

 

How are companies rated by this tool? How reliable is the methodology?

Most of the assessed ratings combine data from various sources, including data direct from the companies, evaluate these data against a set of criteria, and then apply a scoring or rating algorithm. In addition, some raters enable companies to check the details of the ratings results and provide scorecard and/or benchmark information back to the companies.

Factors we considered to determine the reliability of the ratings methodologies include:

  • The extent of the sustainability issues they cover (the number of indicators on which they rate and at what level of granularity)
  • The comprehensiveness of the assessment across various environmental, social, governance, and economic risk areas
  • Whether and how the ratings methodology adjusts to reflect sector, regional and/or company size differences
  • The extent to which the rating assesses the company’s operational and/or supply chain performance.
  • The fair and systematic application of procedures in place

What makes a rating tool high quality?

Not all ratings are created equal, which is why we conducted this assessment. Ratings tools vary considerably in their methodologies and scope. The right ratings tool for a given organization will depend on the organization’s priorities and specific use-case. SPLC does not believe that any one rating system does, could, or should meet the supplier sustainability assessment needs of all procurement organizations. That is why we seek to identify the relative strengths of high-quality sustainability rating tools so that purchasing organizations can converge around the best tool for their use-case. Use our website to find the rating tool that will best meet your needs.

Many factors can be considered in selecting a ratings tool. See the details of our assessment and scoring approach. In fact, we assessed tools against 37 indicators addressed by three main sets of questions:

  1. Who is involved in providing the rating, and how do they conduct the rating?
  2. What sustainability issues does the ratings tool address and how rigorously?
  3. What regions are included in the rating and what is its current coverage? 

We also considered factors such as:

  • transparency
  • comparability
  • standardization
  • customizability

 

 

Can additional rating tools be assessed for inclusion in the recommendations?

Yes. We will add more tools if ratings organizations wish to participate in the assessment and meet the assessment criteria. There will be a reasonable fee to cover our time to conduct the assessment. Contact info@sustainablepurchasing.org 

 

 

Do any of the ratings tools rate suppliers on how well they cascade sustainability requirements down their supply chain?

Most of the tools we assessed include questions and ratings indicators that consider the companies’ effective management of supply chain impacts and risks; especially in sectors where there are known risks.

 

What is the universe of the companies that have already been rated?

Of the 51 ratings tools we initially identified, we found that they cover anything between 50 to 50,000 companies. The population of rated companies is always growing, the profiles and Comparison Table show how many companies have been rated by each recommended tool.

 

How do I find out which companies have already been rated?

Each ratings tool provider has their own way of sharing this information. Some make this accessible via Bloomberg and Yahoo Finance, and others on their own platform. We suggest you get in touch with the providers to discuss how to access the information effectively.

 

If my suppliers are not already rated, can they go and get rated by any of these providers?

Most ratings providers are able to accept new companies to be rated, but costs can vary significantly. Our Comparison Table shows the recommended providers are accepting new companies for ratings, along with some pricing information.

 

How should I use the ratings data?

Purchasers can use supplier ratings in many places:

  • Risk management screening
  • Category-management strategy
  • Pre-qualification criteria
  • Preferred supplier programs
  • Contract RFP language
  • Bid scoring
  • General supplier scorecards
  • Periodic business-reviews.
  • Identification of areas for improvement for suppliers, providing targeted resources to help address those specific issues.
  • In external reporting on sustainable sourcing or purchasing (for example “20% percent of our spend is with suppliers rated B or above”)

 

What are the limitations of even the best supplier ratings tools?

  • Supplier rating tools are *not* product rating tools. Therefore, they are not a substitute for evaluating whether a given product is the most sustainable option. Product ratings, certifications, labels, standards and other tools are better suited for that purpose. 
  • Some of the ratings tools may aggregate a wide range of sustainability performance results into a single score, which may mask the good or poor performance achieved by a company on any single issue.
  • Other tools that are purpose-built for assessing the sustainability of one specific industry, or one type of supplier, will generally be more exact than even the best rating tools that can be applied across an entire supply base. There is an inherent trade-off between broad applicability and specificity.
  • The data verification methodologies of ratings do not tend to be as extensive as the verification methods for certifications, particularly when they include conducting on-site audits.

 

Who conducted this assessment of sustainability ratings tools?

SPLC’s multi-stakeholder Supplier Assessment Working Group oversaw the establishment of the framework and assessment process. SPLC contracted Industrial Economics, Inc. (IEc) to do a landscape assessment, draft the framework, conduct the assessments and analyze the results.

Representatives from the following organizations advised on aspects of the project: AMD, Baxter International, Brown Flynn, Caesars Entertainment, CalTrans, City of Atlanta, City of Portland, County of Los Angeles, Create.org, Department of General Services, State of California, FedEx, Global Impact Investing Network (GIIN), Global Initiative for Sustainability Ratings (GISR), IBM, Industrial Economics, Ingersoll Rand, Intel, International Trade Center (ITC), ISEAL Alliance, Lockheed Martin, Michigan State University, Microsoft, MIT, Multnomah County, NASDAQ, Nielsen, PG&E, Practice GreenHealth, Responsible Business Alliance (formerly EICC), Responsible Sourcing Network, Salesforce.com, Social Hotspots Database, Staples, State of Washington (Department of Ecology), SustainAbility, T-Mobile, TD Bank, Transparency International, UN Environment, United States Postal Service (USPS), University of California Santa Cruz, US Council on Environmental Quality, US Department of Defense (DOD), US General Services Administration (GSA), Walt Disney Company, World Resources Institute.

For more detail on the project and the steps taken, download the Assessment Framework Report.

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